Question 1: Accounting for bad debts by the direct write-off and allowance methods

On 31 May, Hilltop Floral Supply had a $155 000 debit balance in Accounts receivable and a $6 800 credit balance in Allowance for doubtful debts. During June, Hilltop made:

1. Sales on credit, $545 000 (ignore cost of sales)
2. Collections on account, $582 000
3. Write-offs of bad debts, $6 000.

Requirements

1. Record sales and collections on account. Then record bad debts expense (1% of credit sales) and write-offs of customer accounts for June using the allowance method. Show all June activity in Accounts receivable, Allowance for doubtful debts and Bad debts expense (post to these T-accounts).
2. Suppose that Hilltop used a different method to account for bad debts. Record sales and collections on account. Then record bad debts expense for June using the direct write-off method. What additional journal entries are needed if Hilltop later collected the bad debt written-off in June? (Hint: the accountant first needs to re-instate the accounts receivable before recording the cash collection)

Answer

Requirement 1 (Allowance method)

Journal
DATE		ACCOUNTS AND EXPLANATIONS		DEBIT	CREDIT

Accounts receivable					Allowance for doubtful debts

Bad debts expense

Requirement 2 (Direct write-off method)

DATE			ACCOUNTS AND EXPLANATIONS	DEBIT		CREDIT